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Natural and organic food company The Hain Celestial Group, Inc. (NASDAQ:HAIN) has witnessed solid growth in its top and bottom lines, but its shares have hit a rough patch of late. The stock has depreciated around 21% since it hit a 52-week high in early September last year, as there have been doubts as to whether Hain Celestial can sustain its momentum.

Positives vs. negatives

The company’s strategy of growing through acquisitions might also be a point of concern for potential investors, along with a rich P/E multiple of 32 times. Moreover, it missed its revenue estimate of $473 million in its recently-reported second-quarter by quite some margin. But the fact that Hain Celestial’s top line jumped 25% from the prior-year period to $455 million can’t be ignored.

Also, a 36% jump in adjusted earnings isn’t anything to be scoffed at. A downsized revenue outlook of $1.74 billion to $1.76 billion for the full year, as against the prior $1.78 billion-$1.8 billion range, still represents impressive year-over-year growth of 26%-27%.

High-margin endeavors

In addition, Hain Celestial’s productivity savings are another of its remarkable features that have consistently enabled it to improve earnings. Thus, even though the company reduced its revenue forecast, earnings projections went in the opposite direction. Hain Celestial expects to earn $2.40 to $2.47 per share this fiscal year, up from the previous $2.35 to $2.45 per share estimate and ahead of the $2.42 consensus at mid-point.

A reduced revenue outlook and a gaping top line miss might have left some bitter taste in the mouths of Hain Celestial investors as evidenced by a post earnings sell-off. But Hain didn’t come short on these points without reason. The company has decided to discontinue some unprofitable products and focus on high-margin sales. Also, Hain initiated a rollback of deep cut promotions in the jam category in order to extract more value out of it.

The company intends to carry on the exercise of eliminating low-margin products in order to further improve profitability. This could well be a reason for a more cautious outlook, but Hain still looks well-positioned to grow in the long run.

Casting a wide net

The company’s strategy of inorganic growth is one of its key drivers. Global organic food sales are expected to touch $105 billion in 2015, driven by demand in Europe, North America and Latin America. Hence, Hain Celestial intends to cast its net as wide as possible in order to tap the maximum juice out of the booming organic food industry.

Hain Celestial has gradually built its presence across these geographies and positioned itself well to enjoy further growth in the future. The company’s business recorded good growth across continents. Its North American business improved around 9%, Europe by 8% while Asia also performed commendably. On a broader note, Hain’s rest of world sales (excluding the U.S. and the U.K.) jumped 11.1% in the previous quarter.

While Hain Celestial’s presence in around 50 countries around the globe is a positive, so is its wide network of distributors. Distributors such as United Natural Foods, Inc. (NASDAQ:UNFI) and grocers in the league of Whole Foods Market, Inc. (NASDAQ:WFM) among others have supported Hain’s solid growth. Whole Foods, with its presence across key markets in Canada, the U.K. and the U.S., has been delivering solid same-store sale growth. Also, the company is looking to increase its store count from the current 335 stores in the U.S. Thus, expansion of distributor networks, supermarkets, and grocers would enable Hain to address a larger market.

Impressive cost savings

However, growth won’t come easily and Hain will have to counter rising input costs in the future. But the company seems to have a remedy for that as well. Its productivity process has delivered positive results in the past, as evidenced by a 25% jump in savings in the first half of the current fiscal year. Improved output, in-house production of pouches and optimization of the distribution network have helped Hain Celestial so far and they are expected to deliver in the future as well.

Also, it seems that Hain is able to pass on increased prices to consumers. The drawback of deep cuts in the jam category has been well-received by consumers according to management. They believe that customers aren’t shying away from paying higher prices for organic food.

A justified valuation

Thus, with such opportunity lying ahead, investors shouldn’t become myopic and base their decisions on just one year. Given the fact that Hain Celestial has been enjoying solid growth and has been improving its earnings aggressively, a rich valuation seems justified. Moreover, the stock is cheaper when compared to a smaller player such as Annies Inc (NYSE:BNNY).

Annie’s trades at an even more expensive P/E of 57 times, and doesn’t boast of Hain’s diversified array of products. It’s mainly famous for its organic mac and cheese while Hain had sixteen brands that grew in double digits in the previous quarter. Moreover, falling margins and insider sales have proved to be worrisome for Annie’s and that’s the reason why fellow blogger Adam Levy advises investors to exit the stock.

Final words

The growth of the organic food industry, Hain Celestial’s presence in several important markets, and a proven and effective productivity process are some of the reasons why it seems well-positioned to get better in the future. Hence, Hain investors shouldn’t be basing their decision on a short-term outlook, as the company seems poised for growth in the long run.